Why Ontario auto liability coverage should get cheaper

Ontario auto insurers may have a hard time raising rates as much as they were before May 15; a major factor could be a controversial change to the dispute resolution process that took effect four years ago.

New loss trend benchmarks show a decline in the expected future loss costs for bodily injury and accident benefits, but these are partly offset by continued growth in the expected cost to repair vehicles, wrote Tim Bzowey, executive vice president of the Financial Services Regulatory Authority, in a FSRA newsletter released June 8.

FSRA uses loss trend benchmarks to judge whether the rate changes proposed by insurers in their filings are just and reasonable. Recent FSRA numbers show bodily injury claims – mainly personal injury lawsuits against alleged at-fault drivers – are expected to drop 8.3% a year. This is compared to the immediate past benchmark of 0% (or no expected change year to year).

Commenting on bodily injury claims arising from motor vehicle accident lawsuits, Oliver Wyman noted that the province changed its accident benefits dispute resolution system effective Apr. 1 2016. Before then, the Financial Services Commission of Ontario mediated and arbitrated disputed AB claims; either side could appeal an arbitrator’s decision to the Ontario Superior Court of Justice. But now, with the four-year-old system under the Licence Appeal Tribunal, there is no right of appeal other than to the Divisional Court on an issue of law only.

“It is plausible that fewer bodily injury cases are being pursued since accident benefits claimants no longer have access to the courts,” Oliver Wyman observes in Ontario Selected Private Passenger Vehicles Loss Trend Rates and Reform Factors, released this past April. “For example, under the [previous system of FSCO mediation and arbitrations], claimants may have combined their accident benefits and bodily injury claims and consulted legal counsel with intent to go to court for settlement. While understanding of causality is not required to measure trend rates, we consider this change in the [dispute resolution system], may, in part, contributed to the change to a steep decline in bodily injury frequency trend rates.”

Overall claims costs are still expected to rise because three categories of claims – direct compensation property (DCPD) damage, collision and comprehensive – are expected to accelerate.

The loss trend benchmark in DCPD has risen to 9.2% from 8.5%. Collision has risen to 9.1% from 7.2% and comprehensive has risen to 6.1% from 5.3%, FSRA reported May 15.

Industry observers have attributed this trend in part to the skyrocketing cost of repairing newer model vehicles, especially when sensors are damaged, even if collision severity is not increasing.

The overall trend of rising losses on vehicle damage is consistent with numbers from the General Insurance Statistical Agency. In essence, GISA’s numbers show that Ontario auto insurers are making money on liability and accident benefits, but losing money in other coverages.

According to GISA, the Ontario auto industry had an overall a return on equity of 3.3% in 2018 – with an ROE of 11.2% in liability, 5.4% in personal accident but negative 43.1% in the “other” categories.

Other trends noted by FSRA include:

• Overall claims – including liability, accident benefits, collision and comprehensive – are expected to increase 2.4% a year, compared to the previous loss trend rate of 5.2%.
• Accident benefit losses are expected to drop 1.6% a year, compared to rising 5.3% a year under the old benchmark.

The new loss trend rates – which are benchmarks effective May 15 – are based on a report from Oliver Wyman that takes into account claims data as of June of 2019.

FSRA updates its benchmarks twice a year.

Feature image via iStock.com/stacey_newman